The Issue of a New Financial Instrument Standard, Article Review Example

The article discusses the issue of a new financial instrument standard by the International Accounting Standard Board (IASB). These guidelines are intended to be the final element of the response to the global crisis. The article also notes the lack of convergence in the accounting standards following the issue of the standards by the IASB.

Convergence of accounting standards is an objective to establish a single set of accounting standards applicable globally. Despite the joint effort by both the IASB and the FASB to converge accounting instrument standards, such efforts have been unsuccessful. The main reason for the lack of agreement, in this case, is the inability of the two bodies to agree on a single model of impairment. It is noteworthy that the standard, introduced by the IASB, does not converge with the standard that is being developed by the FASB.

The impact this has on accounting is that despite the desire to converge financial accounting standards, convergence is not possible. A converged financial accounting standard ensures that there is a globally applied accounting system, which will improve the comparability of business entities. Although both bodies agree that their standards need to reflect the expected losses rather than losses incurred, they take different approaches to compute these expected losses. This implies that the accounting standards by the two bodies are substantially divergent. As such, there cannot be a globally applied accounting standard, but two different standards.

This means that business entities in the EU and the UK will apply the IFRS standards, whereas entities in the US must use US GAAP standards. It is imperative that despite the disadvantages of a non-converged accounting standard, a high quality accounting standard is more important than a converged accounting standard.